How Did the CRA Expect the Adoption of IFRS To Affect Corporate Tax Compliance and Avoidance?

From 2008 to 2011, the Canada Revenue Agency (CRA) developed a series of bulletins distributed to its internal auditors, alerting them to the fact that the adoption of international financial reporting standards (IFRS) may affect corporate tax reporting. In this study, we review 10 CRA IFRS internal bulletins and one internal memorandum from the office of the director general. We discuss the accounting issues addressed in each bulletin, the tax risks and taxpayer actions identified by the CRA that could lead to corporate tax avoidance, and finally the CRA's prescriptions for detecting or deterring corporate tax avoidance. We found that the CRA did have concerns that the adoption of IFRS in 2011 and prior years, coupled with the discontinuation of Canadian generally accepted accounting principles (GAAP), could lead to various accounting issues, including increased risk that inappropriate tax adjustments would be made for certain enumerated items. This article presents preliminary evidence that accounting standards may affect corporate tax compliance and avoidance. The CRA's concerns are plausible since the starting point for the computation of taxable income is accounting net income. Many firms may engage in tax-avoidance behaviour when they adopt an accounting standard that lends itself to aggressive reporting. The interaction effects of the uncertainty created by the change in GAAP and the tax authority's heightened concern about corporate tax avoidance could be an important area for future study.